Acquiring Minds - Episode Summary: "21 Months to Stability Buying a $1.2m SDE Business"

Podcast Information:

• Title: Acquiring Minds
• Host: Will Smith
• Episode: 21 Months to Stability Buying a $1.2m SDE Business
• Release Date: April 28, 2025
• YouTube: Acquiring Minds YouTube Channel
• Sign Up for Summaries: Acquiring Minds

1. Introduction

In this episode of Acquiring Minds, host Will Smith interviews Jan Roll, the owner of Victoria Renovations, a residential construction business he acquired 21 months prior. The discussion delves into Jan’s motivations for purchasing the business, the acquisition process, challenges faced, and the strategies employed to stabilize and grow the company.

2. Why Jan Chose the Construction Business

Drawing Interest from Corporate to Construction: Jan Roll shares his transition from a 25-year career in banking, including experiences with failed institutions like Silicon Valley Bank, to acquiring a construction business.

• Quote:
  "Everything that I kind of went into the transaction with has come true. It just took a little bit longer to get there."
  — Jan Roll [02:57]

Alignment with Personal Interests and Experience: Jan was drawn to Victoria Renovations due to his growing interest and modest experience in real estate investment alongside his wife, which provided some foundational knowledge relevant to the construction business.

• Quote:
  "I felt like I had already kind of dipped my toe in, at least the corporate structure part."
  — Jan Roll [08:18]

3. The Acquisition Process

Finding the Right Business: Jan discovered Victoria Renovations on BizBuySell in January 2023 and moved swiftly to acquire it, motivated by the business’s structured organization and solid financials.

• Quote:
  "It didn't come around pretty fast. So if I think I was really started to seriously look on Biz Buy Sell and reach out to people and say like, October, November of 2022..."
  — Jan Roll [09:49]

Financial Structuring: Jan utilized a combination of his 401(k) through a ROBS transaction, personal funds, a partner’s investment, and an SBA loan to finance the acquisition.

• Quote:
  "It was 80% ROBS through the 401k, 10% personally with 10% from my partner and then an SBA loan for the balance."
  — Jan Roll [34:50]

4. Challenges Faced

Licensing Delays: One of the first major hurdles was obtaining a necessary license from the State of Georgia, which was fraught with bureaucratic delays and inconsistencies in processing times.

• Quote:
  "It really took over a year for us to secure the license. And that's just caused a lot of unnecessary stress..."
  — Jan Roll [40:43]

Partnership Troubles: Jan initially partnered with a construction veteran to help manage operations. However, differing work ethics and operational philosophies led to the early termination of this partnership, resulting in a costly lawsuit.

• Quote:
  "We went through mediation... it probably cost me $120,000 to settle the lawsuit between lawyer fees, half in lawyer fees, half in a severance."
  — Jan Roll [47:56]

Employee Turnover: Transitioning ownership led to several employees leaving, either due to discomfort with the new management or loyalty shifts, mirroring Jan’s past experiences during corporate mergers.

• Quote:
  "Some of the Employees had been around for a long time, and just, you know, they just didn't want to come along with the transaction."
  — Jan Roll [55:05]

5. Strategies for Stabilization and Growth

Strengthening Referral Networks: Jan emphasized the importance of maintaining and leveraging strong referral networks built by the previous owner, which remained a significant source of leads even during challenging times.

• Quote:
  "The strength of the referrals and of the past projects has borne out. It's amazing."
  — Jan Roll [23:03]

Implementing Robust Systems: He appreciated the previous owner’s structured approach, including detailed project accounting and comprehensive employee handbooks, which provided a solid foundation for operational stability.

• Quote:
  "He had a project accounting, which is very difficult to do. Every project has a category..."
  — Jan Roll [13:30]

Optimizing Cash Flow: Jan tackled the cash conversion challenges by adjusting payment structures and seeking credit limit increases to manage the timing mismatch between outgoing payments and incoming revenues.

• Quote:
  "The money's going out before it's coming in. And that's just part of the business."
  — Jan Roll [26:57]

Enhancing Marketing Efforts: Faced with a slow period during the election year and rising interest rates, Jan invested in SEO and digital marketing to boost lead generation, transitioning from reliance solely on referrals to a more diversified lead pipeline.

• Quote:
  "25% to 33% of our leads are now coming from Google. And it causes its own problems because we actually have had to expand our geographic area a little bit."
  — Jan Roll [80:11]

6. Financial Performance and Growth

SDE and Revenue Metrics: Upon acquisition, Victoria Renovations generated approximately $1.2 million in Seller’s Discretionary Earnings (SDE) with a 20% profit margin. After initial challenges, Jan successfully increased the business pipeline to nearly double its original size.

• Quote:
  "When I looked at the financials... there was about $1.2 million in SDE that the previous owner had done in, I think, the previous two years."
  — Jan Roll [17:33]

Recovery and Growth Post-Challenges: After experiencing a 25% sales drop due to external factors and internal struggles, Jan has steered the business back to stability with a booked business pipeline of $2.75 million and expects to reach $6 million in revenue by calendar year 2025.

• Quote:
  "As of now, I have 2.75 million in booked business... for calendar 2025, I'm expecting to be back at the 6 million."
  — Jan Roll [31:00]

7. Lessons Learned and Takeaways

Thorough Due Diligence: Jan underscores the importance of not only financial due diligence but also thoroughly understanding employee relationships and operational nuances, which are often not fully apparent during the acquisition process.

• Quote:
  "Anytime you're going to get into a partnership, I would only do it with somebody that I've known well and I've worked alongside for a long period of time."
  — Jan Roll [52:10]

Negotiation and Pricing: He reflects on the importance of negotiating a better purchase price to allow for unforeseen challenges, especially in project-based businesses where revenue predictability is lower.

• Quote:
  "I should have negotiated harder on the price because... you want to have the margin of safety as it relates to price."
  — Jan Roll [69:35]

Building Trust and Transparency: Jan emphasizes fostering transparency with clients and subcontractors to build trust, which is crucial in an industry often plagued by distrust.

• Quote:
  "We provide the back end document... here's the process, here's the timing... it gives the clients a little more comfort."
  — Jan Roll [29:18]

Adaptability and Continuous Learning: Transitioning from a corporate environment to a small business required Jan to continuously learn and adapt, leveraging his network and being open to asking questions to bridge knowledge gaps.

• Quote:
  "You have to have a little bit of a leap of faith because there's no amount of due diligence that's going to give you the full picture."
  — Jan Roll [54:56]

8. Marketing and SEO Success

Effective SEO Implementation: Jan shares his successful foray into SEO, which significantly increased lead generation. By optimizing website content and leveraging tools like ChatGPT, he boosted Victoria Renovations’ online presence, leading to a substantial rise in Google-driven leads.

• Quote:
  "I started talking to... applying chat GPT... I optimized it for the Google search... 25% of our leads are now coming from Google."
  — Jan Roll [80:43]

Impact on Business Growth: The enhanced online visibility not only increased leads but also necessitated the expansion of the company's geographic reach to accommodate the influx of inquiries.

• Quote:
  "We've had to expand our geographic area a little bit because Google is hitting people from further outside."
  — Jan Roll [80:11]

9. Future Plans and Financial Strategy

Retiring the 401(k) Investment: Jan outlines his strategy to pay off the SBA loan and transition full ownership from his 401(k) to himself, leveraging Qualified Small Business Stock (QSBS) provisions for potential tax benefits upon eventual sale.

• Quote:
  "Once I pay off the loan, my goal is to then retire the stock... I own the company personally 100% because I've redeemed all the 401k and can sell that without a taxable event."
  — Jan Roll [73:16]

10. Closing Thoughts

Jan concludes the interview with a positive outlook, despite the hurdles faced during the acquisition and initial ownership period. He emphasizes the fulfillment derived from waking up energized and engaged in the business he loves.

• Quote:
  "I do wake up every day energized in the business... It's not passive."
  — Jan Roll [81:52]

Key Takeaways:

• Comprehensive Due Diligence: Beyond financials, understanding employee dynamics and operational processes is crucial.
• Flexibility in Financing: Utilizing diverse financing options like ROBS and SBA loans can facilitate acquisitions.
• Effective Marketing: Leveraging SEO can significantly enhance lead generation and business growth.
• Building Trust: Transparency with clients and subcontractors fosters trust and repeat business.
• Adaptability: Transitioning from corporate to small business ownership requires continuous learning and adaptability.
• Strategic Partnerships: Choosing the right partners, preferably those with whom you have a longstanding relationship, is essential to avoid conflicts.

Notable Quotes:

• "Today, the business is stabilized and growing again."
  — Will Smith [00:00]
• "How else are you going to acquire 1.2 million of SDE for 3.5x?"
  — Will Smith [00:00]
• "I was really excited about it."
  — Jan Roll [12:12]
• "It's not passive."
  — Jan Roll [81:52]

For more insights and detailed discussions on acquisition entrepreneurship, subscribe to the Acquiring Minds newsletter and check out the full episode on YouTube.